The Rx Fails to Cure

Three days after laying off 10 percent of its workforce, eponymous pharmacy
and e-tailer drugstore.com reported a net loss of $45.7 million on sales of
$26.5 million.


The loss compared to a loss of $41.9 million in the same period a year ago.
The good news was that sales for the third quarter of 2000 were up
substantially from the $12.1 million in sales for the same quarter in 1999.


On Friday, the online drugstore cut 60 jobs, and a spokeswoman was quoted as
saying that the company needs to balance cash conservation with growth. The
company took steps to reassure investors that it remains financially sound,
having raised $63 million in August.


The stock closed Friday at $2.56, essentially unchanged. Its 52-week high is
$55.


The company tried to put a happy face on its earnings report today. CEO and
Chairman Peter Neupert said in a statement: “We are very pleased with third
quarter results despite significant reductions in spending, we delivered
solid increases in revenue, gross margins and repeat orders. These strong
results underscore our continued ability to leverage our investments, while
we execute our strategy of sustainable growth.”


Still, the company has yet to post a profitable quarter and in fact lost a
total of $2.16 per share for the first two quarters of 2000. The loss per
share for the third quarter was 80 cents.


The company said it is expecting that fourth quarter net sales will range
from approximately $29 million to $30 million, in line with current Wall
Street consensus forecasts. It also anticipates that fourth quarter losses
before interest, taxes and amortization will be approximately the same as the
third quarter.


Regarding 2001, drugstore.com said it recognizes that the external
investment environment has changed dramatically and it intends to take steps
to modify its spending in order to reduce operating losses while continuing
to grow the business.


The company said it anticipates that 2001 net sales will range from
approximately $135 million to $145 million, while losses before interest,
taxes and amortization will range from approximately $105 million to $110
million. drugstore.com is planning to reduce previously planned 2001
operating expenses by over $50 million, primarily through the reduction of
marketing and administrative expenses, and the layoffs.

“We believe we’re making these decisions from a position of strength,”
Neupert said. “We are the No. 1 online drugstore, and we successfully raised
another $63 million in August, despite a very challenging capital markets
environment.


“We believe these cost-cutting steps are prudent and appropriate actions
that are consistent with our stated strategy of achieving sustainable growth,
while conserving cash on hand.”

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